Mexican Domestic Events Slow NAFTA's Start-Up

THE launch of the North American Free Trade Agreement has not been a pyrotechnic wonder bursting with profits over the skies of Mexico. Rather, NAFTA's lift-off has been more akin to a Saturn V rocket straining and struggling to escape the earth's gravitational embrace.

The ballyhooed free trade regime went into effect on Jan. 1, dropping tariffs on thousands of products for 360 million North American consumers. Trade between the United States and Mexico rose 8 percent in January over December.

But one month (the only official figures available to date) does not make a trend, economists note. And it is clear that economic and political conditions in Mexico have conspired to dampen investor interest in NAFTA and retard the setup of administrative agencies to implement the accord.

This week, Mexico is likely to trumpet the official unveiling of bank rules opening the market, initially, to about 25 US and Canadian financial institutions.

``It's about time,'' grumbles one US banker. Small US banks have griped that the application regulations (banks got a sneak preview last month) are so complicated that they are too costly for all but large financial entities to complete.

Environmental arm slow

Some environmentalists are complaining that while free trade is under way, the environmental oversight commission outlined by the NAFTA companion accords is still on the drawing board. ``It's mid-April, and we've got nothing substantive yet,'' says Bill Snape at Defenders of Wildlife, a US conservation group in Washington, D.C. Mexican and US government officials say meetings will be held early May to decide on the commission's executive director. A decision is expected to be announced May 23.

Many US and Mexican conservation groups would like to see a Mexican named to the post because they believe that is where the most NAFTA-related environmental problems are likely to arise. The US government advocates that the job should go to the most qualified person. Canadian officials argue that if the headquarters are in Canada, a Canadian should run it.

In early July, trade ministers are expected to meet to decide on a budget for the commission and procedural rules. It could be autumn before the commission begins to function.

``It's going slowly, but its going,'' says Gustavo Alanis, director of the Mexican Center of Environmental law here. Montreal was chosen recently as the site of the NAFTA environmental commission. The secretariat of the labor review commission, experiencing similar setup doldrums, will be in Dallas. NAFTA trade dispute offices will be in Mexico. And San Antonio will host the North American Development Bank, intended primarily to finance border environmental programs and, secondarily, to fund community development projects in towns with industries hit by the increase in foreign competition.

The problem, Mr. Alanis says, is that NAFTA's implementation is taking place against the backdrop of ``a very difficult year for Mexico.'' The armed Mayan Indian uprising in Chiapas in January shook investor confidence in what appeared to be a relatively stable country by Latin American standards. The kidnapping in March of billionaire banker Alfredo Harp Helu (still captive with a reported $50 million ransom demand) gave investors further pause. And then, the assassination of ruling-party presidential candidate Luis Donaldo Colosio created fresh uncertainty on the Mexican political front.

Colosio, as secretary of social development, had been involved in negotiations for the NAFTA side agreements on the environment. Within his ministry was the Mexican equivalent of the US Environmental Protection Agency (EPA). ``When we lost Colosio, we lost an ally,'' Alanis says.

The candidate who replaced Colosio, Ernesto Zedillo Ponce de Leon, has not worked on environmental issues. The business community likes his credentials as a conservative, free-trade-oriented economist who pledges to continue the current trade policy.

Sluggish economy

Economist Jonathan Heath notes that NAFTA is beginning when the Mexican economy is sluggish. Mexican companies, which enjoyed a subsidized market until joining GATT in 1986, are struggling to compete with a flood of Asian imports.

``Everyone talked about NAFTA producing jobs here. But we're still in the net-job-loss stage in Mexico. Since the economy opened up, and especially in the last two or three years, it's been very difficult for Mexican businesses to compete,'' says Mr. Heath, chief economist at Macro Asesoria Economica, a Mexico City consulting firm.

Mexican officials say they are not concerned about the criticism over NAFTA's slow implementation. ``This is a long-term trade agreement,'' said Raul Ramos Tercero, director of economic studies at the Secretariat of Commerce and Industry, in a speech in Brownsville, Texas. He says NAFTA's implementation is not nearly as problematic in terms of customs delays caused by new rules as the US-Canada free trade agreement.

He points to the need for a ``greater opening'' of the North American market. NAFTA provides three timetables (5, 10, and 15 years), for reducing tariffs between Canada, the US, and Mexico on specific products. But NAFTA also allows the three nations to renegotiate the timetable item-by-item. Currently, trade officials are exchanging lists of negotiable products at a faster rate than outlined in NAFTA.